Simple steps to unlock Africa’s huge potential

Africa has the potential to become an agricultural powerhouse. Once the basics are established, some innovative thinking could lead to huge changes

By Thierry Tanoh

Illustration: June Hsu

Last year, the international community recognized one of the worst humanitarian tragedies of recent times unfolding in the Horn of Africa and moved in to ameliorate the widespread famine there. Now, poor rains, crop shortages and continuing conflict could cause millions to be plunged back into life-threatening levels of hunger and malnutrition.

Emergency assistance is crucial in this fragile time, but it is not enough. Only if the agricultural sector’s fundamental inadequacies are addressed can the region truly escape famine’s blight.

Africa is endowed with 60 percent of the world’s unused arable land and millions of dedicated farmers. They simply need the tools, infrastructure and competence to unlock the continent’s tremendous agricultural potential. There is no reason — and no excuse — to leave the survival of millions to unpredictable weather conditions. Rather, countries must take control by drastically improving efficiency and productivity.

To be sure, progress has been made. Some African governments have reduced regulatory barriers to private sector investment in agriculture. Some are implementing risk management and hedging tools to shield farmers from droughts and floods, and poor consumers from the food price volatility that such disasters cause. For example, the Global Index Insurance Facility insures Kenyan farmers against drought or excessive rainfall.

Such initiatives foster the flow of resources into agriculture — both for the agribusinesses needed to feed Africa’s growing cities and for smallholders who need better seeds, fertilizer and market roads. Although more developed regions have been taking such measures, they are not yet standard practice in Africa.

The continent’s agricultural sector is further hindered by low skills, a dearth of innovation, weak infrastructure, little funding, and lack of access to land, land titles and lender security. However, given the right tools, all of these problems are solvable.

For example, in order to finance reform, local banks need incentives to expand credit. That could mean access to specialized credit bureaus and rating agencies, risk-sharing facilities targeting smallholders and advisory services to provide capacity-building and education.

These banks also need direct support. For example, the International Finance Corporation is investing US$25 million in Zambia National Commercial Bank to increase access to finance for small-scale entrepreneurs and rural agribusiness companies, which account for a significant share of Zambia’s economic output.

Moreover, innovative financing techniques — such as structured trade finance, warehouse receipt finance, and supplier finance — are already in place or being developed. For example, under the Global Warehouse Receipt Program, farmers may use produce stored in depositories as collateral for loans.

Smallholder farm-mechanization models are also needed to improve efficiency and increase yields. Farmers could group together to pool their production and negotiate a favorable offtake agreement to monetize future sales and then use the receipts to lease equipment, such as tractors.

Water is another major constraint on food production in some regions. Most affected countries are working to increase supply by developing new sources of ground and surface water, using wastewater from nearby urban areas, harvesting rainwater, or reusing agricultural drainage. Meanwhile, some countries are focusing on reducing demand, through improved management and innovative agricultural techniques, such as precision and drip irrigation.